Saturday, 17 May 2014

Advantage for House Owners in Availing the Reverse Mortgage Loan

Important source of money
One important tool that is most beneficial for house owners in need of money is the reverse mortgage plan. In this, the borrower does not pay interest or make any principal payment for obtaining his or her loan. The person continues to occupy the mortgaged property even after the mortgage is fully paid.

Understanding the limits of the loan
Usually the loan value is determined through the loan to value ratio. This ratio is usually 60%. It determines the amount of loan one can avail of through the reverse mortgage scheme. If the property has more value, then one can get a higher amount as loan. The maximum period of mortgage is 15 years with a housing finance company.

How does one pay off the loan?
Actually, one does not pay off the loan at all. Once the value of the property has been determined and the modality of payment finalized by the borrower with the bank, then the financial institution to whom the property is mortgaged will pay the reverse mortgage every month, every six months or as a lump sum amount.

Status of the property on the death of the owner
If one of the owners dies, the other continues to live in the house and get the payment from the reverse mortgage. If both the owners are dead, then the bank will determine the amount of loan remaining and pass in on to the nominated heirs. The financial institution will make property reevaluation every 5 years.

Advantages of the reverse mortgage loan
The most obvious advantage is that the borrower does not have to pay anything. The next thing is that the loan amount obtained as reverse mortgage will qualify as a loan and not as income and so, it is not taxable. However, a large section of the senior citizens do not seem to be aware of this scheme. The credit rating of the person applying for the loan does not matter. The title of the property remains with the owners.

Conditions the borrower must meet to qualify for the loan
First, the person should be more than 60 or 65 years of age depending on the locality. If more than one person takes the reverse mortgage, the youngest person should be of the qualifying age. Next, the borrower must own the property fully or the loan existing must be low enough for the borrower to pay it off fully utilizing the reverse mortgage payments.

Factors that determine the size of the loan
· Value of the property
· Age of the borrower
· Location of the property
· Current rates of interest
· Restriction of upper limits and lower limits placed by the banks

If the property is valued more, one can get a higher reverse mortgage loan. If the age of the borrower is more, then the loan value will be more. Properties that are centrally located or located in prime areas have more value. The real estate rates fixed by the banks also play an important role in the loan amount. The financial institution may also have limits say, Rs. 200, 000 lower limit to say Rs. 450, 000 upper limit as the reverse mortgage loan value.